American Express Company (AXP), Goldman Sachs Group Inc (GS): Evening Dow Report: How Financial Stocks Lifted the Dow to Record No. 52

by Motley Fool on January 1, 2014

Although we don’t believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes — just in case they’re material to our investing thesis.

The Dow Jones Industrials finished the year off with a solid performance, rising 72 points to finish the year with a gain of 26.5%. That’s the best annual performance for the Dow in 18 years, and financial stocks have played a vital role both in today’s gains and in the longer-run results for the stock market since the current bull market began in 2009. American Express Company (NYSE:AXP) was the best performer in the Dow today, but Goldman Sachs Group Inc (NYSE:GS) , JPMorgan Chase & Co. (NYSE:JPM) , and Visa Inc (NYSE:V) have all done their part in lifting the average in 2013.

Essentially, the gains in the financials reflect improvement in just about every major facet of American financial life. Three of the four financials have benefited from favorable conditions in the credit- and debit-card industry. JPMorgan Chase & Co. (NYSE:JPM)’s Chase unit is one of the biggest issuers of credit cards and has benefited from improving economic conditions that have led to reduced delinquency and charge-off rates. Even with its traditional focus toward upper-income customers for whom financial worries are usually secondary, American Express Company (NYSE:AXP) has also benefited greatly this year from improving economic conditions both in the U.S. and abroad. For Visa Inc (NYSE:V), its invitation to join the Dow emphasized the value of its card network, as it provides a leading platform for electronic transactions without having the systemic risk of relying on cardholders’ creditworthiness to produce profits.

Meanwhile, both JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS) have seen gains connected to the strong performance in the stock market. Although rising interest rates have been problematic for both companies, soaring stocks have led to greater equity underwriting activity for their investment-banking operations and has also produced opportunities for profit in their proprietary-trading units. If markets continue to perform well, Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) should keep participating in those gains.

Success among financials hasn’t come without some bumps in the road, though. Weighing on the financials has been an onslaught of litigation in 2013, which has resulted in billions of dollars in settlements for JPMorgan Chase & Co. (NYSE:JPM) and other big U.S. banks. Yet with every successful settlement, financial companies get one step closer to finally putting the financial crisis behind them and moving forward with an eye toward boosting profits in the future.

Looking forward to 2014, the Dow will rely on Visa Inc (NYSE:V), American Express Company (NYSE:AXP), JPMorgan Chase & Co. (NYSE:JPM), and Goldman Sachs Group Inc (NYSE:GS) to pull their weight if investors want to see a sixth year of bull-market gains. For now, financials appear to be on solid footing, with signs pointing to a healthy economic expansion that could continue well into the coming year and beyond.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends American Express Company (NYSE:AXP), Goldman Sachs Group Inc (NYSE:GS), and Visa Inc (NYSE:V) and owns shares of JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V). We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.